LLG Blog

THE CARES ACT

Recent tax law changes may affect your estate plan

The Coronavirus Aid, Relief and Economic Security (CARES) Act is designed to provide immediate tax relief to individuals and businesses struggling to make ends meet due to the novel coronavirus (COVIOD-19) pandemic. But this law may also have a long-reaching impact on your estate plan. Notably, the CARES Act includes several provisions for participants in qualified retirement plans and IRA that could span generations.

Required minimum distributions

Most individuals are familiar with the basic rules for required minimum distributions (RMDs). Generally, you must begin taking RMDs from qualified plans and traditional IRAs after attaining a specified age.
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THE CARES ACT CREATES CHARITABLE TAX INCENTIVES

Many individuals incorporate charitable giving into their estate plans, providing assistance to their favorite charities while preserving sufficient assets for their heirs. Typically, the charitable donations are structured to maximize the tax benefits on the books.

Now, the Coronavirus Aid, Relief and Economic Security (CARES) Act increases those tax incentives. Under the CARES Act — adopted to address the fallout from the novel coronavirus (COVID-19) pandemic — taxpayers of all stripes may realize additional tax savings from charitable donations in 2020.

New deduction for nonitemizers

Do you still itemize tax deductions on your federal tax return? It can make a big difference in how you approach charitable giving.
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TAKE THE PROPER STEPS TO INSULATE YOUR ESTATE FROM CREDITORS

For years, you may have viewed estate taxes as the main threat to your family fortune, especially if you own a successful business or valuable real estate. But with the federal gift and tax exemption set at $11.58 million for 2020, estate taxes likely are no longer a concern.

Today you may be more concerned with protecting your estate from creditors and lawsuits. There are several ways to accomplish this objective in accordance with prevailing state laws.
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ESTATE PLANNING PITFALL

Your Charitable Gifts are Unrestricted

If you’re making sizeable donations to charity as part of your estate plan, your good intentions are clear. But how do you know the funds will be used to further the charity’s mission? There are no absolute guarantees.

For instance, a financially sound charitable organization could begin experiencing economic difficulties and eventually file for bankruptcy or even halt operations. In that case, your donations may be used by the charity to pay off creditors or be allocated to some other purpose you hadn’t envisioned — and no one is going to ask your permission.

Fortunately, however, you can take steps to preserve your charitable legacy.
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HOW DOES THE SECURE ACT AFFECT ESTATE PLANNING?

The Setting Every Community Up for Retirement Enhancement (SECURE) Act is the biggest retirement planning law in decades. However, when all is said and done, the new law may have just as significant an impact on estate planning, especially if younger individuals are in line to inherit IRA or qualified retirement plan accounts.

Key Secure Act Provisions

The SECURE Act includes noteworthy provisions for both individuals and businesses. (See “Nothing personal, strictly business” at X for business-related provisions.) Here’s a summary of the key tax law changes for individual retirement-savers.
Read more . . .

HSAs

Understanding the Health Savings and Estate Planning Benefits

In addition to being a viable option to reduce health care costs, a Health Savings Account (HSA) can positively affect your estate plan because its funds grow on a tax-deferred basis. An HSA is similar to a traditional IRA or 401(k) plan in that it’s a tax-advantaged savings account funded with pretax dollars. Funds can be withdrawn tax-free to pay for a wide range of qualified medical expenses.

ABCs of an HSA

To provide these benefits, an HSA must be coupled with a high-deductible health plan (HDHP). For 2020, an HDHP is a plan with a minimum deductible of $1,400 ($2,800 for family coverage) and maximum out-of-pocket expenses of $6,900 ($13,800 for family coverage).
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CONSIDER ALL THE ANGLES OF JOINT OWNERSHIP

Estate planners generally tout the virtues of owning property jointly — and with good reason. Joint ownership offers several advantages for surviving family members. But this shouldn’t be viewed as a panacea for every estate planning woe. You must also be aware of all the implications.

2 types of joint ownership

As the name implies, joint ownership requires interests in property by more than one party.
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DOES A QUALIFIED CHARITABLE DISTRIBUTION MAKE SENSE THIS YEAR?

A unique provision in the tax code allows certain retirees to avoid tax on transfers made directly from a traditional IRA to a qualified charitable organization. Although one of the main attractions of a qualified charitable distribution (QCD) has been negated for 2020, there are still several viable reasons for making a QCD this year.

At the same time, charities that are in dire need of funding during the COVID-19 pandemic will greatly appreciate your generosity.

The back story

Normally, distributions from traditional IRAs are taxable at ordinary income tax rates, currently reaching as high as 37%. If you take money from an IRA and donate it to a qualified charity, it’s deductible on your annual tax return if you itemize deductions.
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Shh!

THIS IS A SILENT TRUST, LET'S KEEP IT QUIET!

Generally, estate planning advisors recommend that you be upfront with family members about how you plan to divide your assets. For example, you might hold a family meeting or write a letter to accompany your will. However, if you’re using a “silent trust,” sometimes referred to as a “quiet trust,” you’ll have keep it to yourself.

A silent trust limits the amount of information shared with beneficiaries or, in some cases, keeps the existence of the trust secret. This trust type offers many benefits, but also a few drawbacks.
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HSAs

Understanding the health savings and estate planning benefits

In addition to being a viable option to reduce health care costs, a Health Savings Account (HSA) can positively affect your estate plan because its funds grow on a tax-deferred basis. An HSA is similar to a traditional IRA or 401(k) plan in that it’s a tax-advantaged savings account funded with pretax dollars. Funds can be withdrawn tax-free to pay for a wide range of qualified medical expenses.

ABCs of an HSA

To provide these benefits, an HSA must be coupled with a high-deductible health plan (HDHP). For 2020, an HDHP is a plan with a minimum deductible of $1,400 ($2,800 for family coverage) and maximum out-of-pocket expenses of $6,900 ($13,800 for family coverage).
Read more . . .

HOW DOES THE SECURE ACT AFFECT ESTATE PLANNING

The Setting Every Community Up for Retirement Enhancement (SECURE) Act is the biggest retirement planning law in decades. However, when all is said and done, the new law may have just as significant an impact on estate planning, especially if younger individuals are in line to inherit IRA or qualified retirement plan accounts.

Key SECURE Act Provisions

The SECURE Act includes noteworthy provisions for both individuals and businesses. (See “Nothing personal, strictly business” at X for business-related provisions.) Here’s a summary of the key tax law changes for individual retirement-savers.
Read more . . .